Question
Article 431, paragraph 4 says that "institutions shall, if requested, explain their rating decisions to SMEs and other corporate applicants for loans, providing an explanation in writing when asked." Shall this be interpreted as institutions shall show the exact probability of default for the applicants or the applicants rating on the institutions internal rating scales or in any other way?
Background on the question
Unclear meaning of the paragraph.
Answer
Article 431(4)(5) of Regulation (EU) No 575/2013 (CRR) requires institutions, if requested, to explain their rating decisions to SMEs and other corporate applicants for loans, providing an explanation in writing when asked. To this end, institutions should take a pragmatic, proportional and common sense approach when dealing with these requests, and provide information such as: the rating, the applied methodology, and, where relevant, information on probability of default or PD bands.